Saudi Energy Minister Abdulaziz bin Salman on October 5, 2022.
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Leading oil producer alliance OPEC+ is waiting for concrete action from the central bank on interest rates before it takes into account the potential impact on the energy demand landscape, according to the Saudi energy minister.
Prince Abdulaziz bin Salman said during a press conference on Sunday, in response to a question about whether OPEC + supply cuts could restore inflationary pressures around the world. It could restore inflationary pressures around the world: “Central banks, with all respect, are scrambling (with their messaging).” A time when central banks are reining in increases in consumer prices and shying away from potentially lower interest rates.
Earlier on Sunday, the OPEC+ group – which includes the Organization of the Petroleum Exporting Countries and its allies – agreed to extend official production cuts until the end of next year. A subgroup of the coalition will extend two additional layers of additional voluntary supply cuts: This eight-country subgroup will extend a tranche of 1.7 million bpd through 2025, and a larger tranche of 2.2 million bpd. Cut to the end of the third quarter today.
The production strategy decisions come as OPEC forecasts show an increase of 2.25 million barrels per day in demand, according to the monthly oil market report for May. The impending summer driving season and the end of refinery maintenance in China are also expected to worsen crude oil demand in the short term.
Energy costs have risen around the world in the wake of Russia's full invasion of Ukraine, exacerbating the economic downturn that followed the Covid-19 pandemic. Global institutions have previously cited energy prices as the reason behind inflationary fears. In contrast, accumulated inflation suppressed demand for oil.
Expectations have escalated over the timeframe and number of interest rate cuts that global central banks, whose countries are tirelessly battling sticky inflation, are likely to implement. The European Central Bank is widely expected to implement the long-awaited cut at its meeting on June 6, even as inflation in the euro zone recently rose annually to 2.6% in May, from 2.4% in April.
Policy easing was also expected in the near term from the US Federal Reserve, but the recent wave of stronger-than-expected economic data and indicators from policymakers have dampened these expectations.
“Show me any central bank governor (who has) the determination to give people a path on when, where and how they will cut interest rates,” said Abdulaziz bin Salman of Saudi Arabia, amid the ongoing contradiction, stressing that the group is waiting for “more certainty.” On the overall economic path that is likely to lead to increased demand with a clear path.”
The OPEC+ alliance has repeatedly said that it will intervene to address changes in the oil market quickly and flexibly, as needed. The Saudi Energy Minister on Sunday defended that the alliance's latest production strategy is based on the current market picture.
“As it stands today, we believe that this is something that requires us to give the market clarity about the signals we are issuing, and it is crucial that people take an example of what we are doing,” he said.
